Right of First Refusal in Real Estate

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What does the right of first refusal mean?

The right of first refusal exists in various areas of commerce, but is mainly applied in the purchase of real estate. Interested parties who are entitled to pre-emption have the right to assert this claim against third parties and are thus given preference in the sale of real estate. This is the case, for example, if a rental property is to be converted into residential property and the tenants who currently occupy it are granted a tenant pre-emption right. If the tenant with the right of first refusal is interested in purchasing the flat, he or she can make the decision to buy within two months; third-party buyers are given lower priority.

Types of pre-emptive rights

There are three different types of rights of first refusal. The right of pre-emption under the law of obligations in Germany (Vorkaufsberechtigten) enables the person entitled to pre-emption to purchase an object for which a contract has already been concluded with a third party. It is irrelevant whether this concerns the sale of movable or immovable property. A real right of first refusal applies exclusively to the sale of real estate. In this case, the right of pre-emption is recorded in the land register so that it acts as a transfer barrier in the event of any sale. This means that the beneficiary has a right of first refusal and can exercise this right if the property is for sale. In the case of the right of first refusal under public law, a municipality has this right. The municipality's right of first refusal also concerns the acquisition of real estate. The municipality's pre-emption in the case of real estate exists if the acquisition and use of the land is intended to serve the public good and there is thus a public interest in the municipality's planned measure.

Who can exercise a right of first refusal?

In order to assert the right of pre-emption, there must be a legally binding contract between the party obliged to pre-empt and a third party. Tenants have a right of first refusal when converting rental apartments into property in accordance with Section 577 of the German Civil Code (BGB). Among co-heirs, this right also exists if one of them wishes to sell his or her share to a third party. If there are no statutory rights of first refusal, a contractual or real right of first refusal can be secured, in the case of the latter, for example, by entering it in the land register.

According to § 577 BGB, tenants have a right of first refusal when converting rental apartments

Special case of a municipality's pre-emptive right

Several requirements must be fulfilled in the case of a municipality's right of first refusal. These are regulated by § 24 BauGB. Accordingly, a property must be within the scope of a development plan for use for public purposes. It must also be located in a reallocation area, a formally designated redevelopment area, within the scope of a conservation statute, or in an urban development area. In order to exercise the right of first refusal, the municipality must prove that there is a public interest.

Deadlines and contractual agreement

In order to contractually agree on a right of first refusal, a number of points must be taken into account. Important elements of the contract are information on the person obligated and entitled to pre-emption, a description of the property, and the beginning of the pre-emption right. In the case of a limited right of first refusal, the period during which it applies must be specified. Furthermore, the type of pre-emptive right (in rem or under the law of obligations) should be entered; the same applies to a possible inheritance of the right. For this purpose, the party obligated to pre-empt makes a declaration to inform the beneficiary in the event of a sale. In addition, it is possible to set a legally alternative deadline for exercising the right of pre-emption and even a contractual penalty, provided that the person entitled to pre-emption is not taken into account. In the case of the tenant's right of pre-emption, there is a deadline of two months within which he must decide whether he wishes to buy the property. However, it can also be extended by agreement. The same applies to the right of first refusal for the property owner's heirs. When converting a rented flat into residential property and concluding a sale agreement, the landlord must also inform the tenant immediately. The regulation on this can be found in Section 469 (1) BGB.

Frequently asked questions

Written by:

Stefanie Aust, Guest Writer

Stefanie loves to put complex topics from the real estate world into understandable and inspiring words. Whether it's about the right financing, choosing the right type of flat, or a successful property search: Stefanie is happy to inform you.

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